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A terrace house is for sale in Sydney for $22m. The grotesquely unfair capital gains discount is partly to blame | Greg Jericho
By Greg Jericho,
9 hours ago
In the June quarter, the average price of a dwelling (ie houses and apartments) across all of Australia was $973,300. That was 6.4% higher than the $914,900 of a year ago. Photograph: AAP
This week a friend who lives in Sydney posted a link on social media to the story of a terrace house on the market for $22m . She noted, with the exasperation that only comes from someone who lives in Sydney and wishes one day to own some property, that you could buy a castle in Europe for that much. And sure, this terrace house has a three-car garage and en suites in all four bedrooms, so it is not exactly standard. But still.
The good news is that $22m is not the median price for a house in Sydney. The bad news is that it is $1.4m. And while you might think that your friends from Sydney do go on a bit, just note that the median cost of a house in Sydney is 72% higher than in Melbourne (just a lazy extra $586,000)
The average price rise in Sydney was actually less than the rise in wages. But in Adelaide, Perth and Brisbane the past year was a terrible one for affordability. But don’t worry about feeling left out – the past decade has been terrible for everyone’s ability to buy a house.
Are things about to improve?
Probably not. The latest housing finance data suggests there has been a solid increase in the number of people taking out loans – and also the size of those loans.
And because you only take out a housing loan because you are buying (or planning to buy) a property, the growth of loans is strongly linked to the growth of prices.
History suggests the overall growth of dwelling prices over the year will remain strong:
And just in case people in Perth are hoping that maybe things are about to calm down, just note that in the year to July, investment property loans grew 95%
In the June quarter, the average price of a dwelling (ie houses and apartments) across all of Australia was $973,300. That was 6.4% higher than the $914,900 of a year ago. By contrast last week’s GDP figures showed that per capita household disposable income rose 2.4%.
It means that once again housing affordability on average fell. But let’s be honest, this is not news.
After all, since 2000 the average price of dwellings has risen 363% while average household incomes have risen 152%.
The sad news is that this was not always how things worked.
From 1970 to 2000 average dwelling prices rose largely in line with household incomes. Other than the late 1980s asset price boom, they went in sync.
Some economists suggest that the introduction of the capital gains tax discount was just a coincidence and had nothing at all to do with the divergence of house prices and household incomes.
No one is silly enough to suggest that removing the capital gains discount will solve everything, and certainly we do need greater density, and more housing in general – and especially more public housing.
But the thing about that capital gains discount is that not only has it verifiably distorted the housing market by making negative gearing a very attractive proposition – the benefits overwhelmingly go to the richest.
This is because the very richest, unlike most of us, don’t get a lot of their money from salary or wages. People who have incomes over $1m make up only around 0.2% of all taxpayers, and they earn 1.3% of all salaries and wages earned, but 41% of all capital gains earned. And consider as well that those capital gains come with a 50% tax discount:
The Treasury estimates that in 2023-24 about $19bn in tax revenue was forgone due to the discount. And 80% of it went to the richest 10% – a sweet $15.6bn:
Now just put this in your head: at an average price of $973,300, that $15.6bn is the equivalent of 15,990 homes.
Now compare that with the government Housing Australia Future Fund. One might wonder why the government doesn’t just stop giving property investors a massive tax break and use the extra revenue to build and buy new social and affordable homes itself?
But here’s another figure to think on. That $973,300 is 16.8 times the annual per capita household income in June this year of $57,978. In effect, the average house price is worth 16.8 years of the average household’s disposable income.
That is the most expensive on record – nearly double the nine years in 1999:
Is the capital gains discount all to blame? No. Is the discount a massive benefit to the wealthy, has it distorted the housing market, and is it costing the government billions that could be better spent on public housing that would improve housing affordability?
Yes, yes and yes.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
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